Friday Feb 15, 2013 Posted 10 30 CST
Heinz Sold as Deals Take Off
Shopping Spree for Wall Street
A flurry of acquisitions announced within hours of each other Thursday for everything from ketchup to airlines to drug wholesaling, suggests big time deal making is back after a nearly six year absence form Wall Street.
The Dam has burst says one Wall Street Veteran
Front Page Wall Street Journal Today
Socionomics is hardly an exact science. But deals like this don't originate yesterday over a dinner napkin, they are months in the making. The fact that all of them came together yesterday suggests a peak in
social mood commensurate with the market's third high over the last fourteen years. The real burst of the dam is probably a few months off, but no one is noticing the obvious comparison to past market tops now. As we said Feb 3 Party On, It's Spuds McKenzie Time Again.
On a personal note, I dropped my 2009 Cobalt SS (purchased with 10,000 miles on the odometer for $16,300) off for a brake check today. The showroom featured a $62,000 supercharged Camaro. Outside there were five new Corvettes at around $67,000 each. Pickups are bargain priced at $36,000. It is fair to say this sector also shows a 180 degree turn around from 2009. We noted the emergence of the $100,000 + SUV in a recent post, even Maserati has joined the parade.
Our exit last September 18 from long commodity producer positions was near perfect. Our failure to buy puts or go short on the sector was well less than perfect. An old saying has it that the markets can remain irrational longer than one can bet against them, let's take a look.
It's been an humbling experience.
John Bollinger on then Financial News Network commenting on being long the market during the October 1987 crash.
I admit to feeling now a bit like John did then but I have reduced my exposre well below Sept 18 levels.
GDX to SPX
Perhaps the best way to view an extreme is a ratio chart. Here we graph a major gold ETF GDX against the SPX. In late 2008 at the height of the sell off, the ratio hit a new low. There were literally no buyers so the price of GDX fell and fell. But notice that it only lasted three months and then GDX reversed as SPX fell into March 2009, you cannot tell that by this chart but that is what happened. I drew the red green resistance line to show that this ratio has entered irrational valuation nly seen at market extremes. Which is not to say it cannot become more irrational short term.
GDXJ Life History
This chart represents the entire history of GDXJ since its creation in 2009. It has almost reached the extreme of last summer. At top its ratio to the SPX has gone to a new low.
GDXJ to Gold
The ratio of GDXJ to gold hit a new low this morning. Again this is not to say it cannot go lower but to show, eyeballing all the last three charts that these relationships have reached or are near historic extremes.
KOL XME REMX have all pulled back today. Crude oil is down today but has enjoyed a nice run from $84 to $97.
We are wondering if gold and silver find their bottoms when stocks finally register a short term top here.
When will that be, well the summation index and bullish percent charts are no longer rising.
Note MACD rolling over at bottom. The bullish percent charts show a similar sideways action.
And in the social mood can turn on a dime department we present Rackspace.
I bought RAX last year at 40, below its 200 day MA and sold in the 60s. Interestingly RAX was chosen as the target study for a CFA contest involving college students Our students concluded it was an $80 stock. They were right for one day. They had picked a sell signal. The fact that even successful companies like this change in price every day is a display of the vagaries of mood. The media excuse for the sell off was less than expected earnings. But RAX was way over its 200 day MA, and as Bob Farrel noted, things return to their long term trend.
So while Wall Street parties on, those holding gold and silver have the exact opposite experience. Which group will be right over the next few weeks, stocks at new highs or the now orphaned mining stocks?
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